While I have spoken on this topic often, and while my desire here is not to bore readers or beat a dead horse, the topic of big banks and the issue of "too big to fail" continues to bring forth events that are too important to ignore.  I have never had any love for Citibank, Citicorp, or how it is now known as Citgroup.  In my opinion, this company has outlived its usefullness for the past 15 years.  In fact, doesn't it makes you wonder about a company that keeps changing its name?

 

John S. Reed is the man who was the helm of Citicorp for 14 years and was instrumental in engineering the mega company now known as Citigroup.  He retired in 2000.  This week, Mr. Reed made public his personal apology for creating such a huge banking monster that now stands at the head of the class as a federal government bailout recipient. 

 

He said that banks this big should be divided into separate parts, echoing Mr. Greenspan's comments of two weeks ago, and echoing our own comments here which we have been making for quite some time.

Citigroup was formed in 1998 when Citicorp decided to merge and combine itself with an insurance company, Travelers Group Inc. which was headed by Sanford Weill, and which owned the investment firm Salomon Smith Barney.  As a result of the sub-prime meltdown and government bailouts, Citigroup is now 34 percent-owned by the Treasury Department.

Mr. Reed commented that, "Congress' overhaul of U.S. financial regulations should include ordering banks to hold more capital, ensuring executives' compensation is aligned with long-term profitability and banning firms that take deposits from also engaging in equities and fixed-income trading."

In further comments about the mistake in Congress repealing the Glass Steagel Act, Mr. Reed made his most telling comments when he said, "We learn from our mistakes...When you're running a company, you do what you think is right for the stockholders. Right now I'm looking at this as a citizen."

That is precisely the problem; the fact that corporate officers care nothing about the ramifications to the country when their sole focus is on how to appease shareholders.  Especially when the shareholders they are referring to are not average citizens but large mutual funds and wealthy private investors whose only concern is, "what have you done for me lately Mr. CEO?"

Citigroup pioneered the creation and selling of collateralized debt obligations, these bundled loans which were leveraged a thousand fold, and which became the very things that created this bank led financial fiasco.  Now, Citigroup is pioneering the high rate of unemployment in this country as it has shed $300 billion in assets, and has eliminated about 100,000 jobs since late 2007.  

In the past year, Citigroup received $45 billion from the U.S. government in efforts to stabilize its balance sheet, and another $300 billion in guarantees from the Feds.

 

Do try have a wonderful weekend, and let us all hope that Congress can eventually find the means to get this one right.